Which cost estimation method involves estimating the cost of each activity in detail?

Which cost estimation method involves estimating the cost of each activity in detail?

• A. Top-down estimating
• B. Parametric modelling
• C. Activity-based costing
• D. Bottom-up estimating

Answer: (D)

Estimating the cost of each activity in detail and then summing those estimates gives the most accurate project budget because costs are tied directly to the specific work to be performed. This approach uses the work breakdown structure to break the project into individual activities, estimates the resources, quantities, rates, and durations for each one, and then aggregates them to form the total. By building the estimate from the ground up, you capture all the cost drivers at the activity level, improve traceability to scope, and gain better insight into where risks or potential overruns may lie. It does require more time and effort, but the payoff is a detailed, defensible estimate that aligns with the defined scope and supports precise cost control as the project unfolds. Other methods—such as high-level top-down estimates, parametric models, or activity-based costing used for different financial analyses—do not provide the same detailed, activity-level budgeting, which is why they’re less suited when you want a thorough, bottom-up view of costs.

Estimating the cost of each activity in detail and then summing those estimates gives the most accurate project budget because costs are tied directly to the specific work to be performed. This approach uses the work breakdown structure to break the project into individual activities, estimates the resources, quantities, rates, and durations for each one, and then aggregates them to form the total. By building the estimate from the ground up, you capture all the cost drivers at the activity level, improve traceability to scope, and gain better insight into where risks or potential overruns may lie. It does require more time and effort, but the payoff is a detailed, defensible estimate that aligns with the defined scope and supports precise cost control as the project unfolds. Other methods—such as high-level top-down estimates, parametric models, or activity-based costing used for different financial analyses—do not provide the same detailed, activity-level budgeting, which is why they’re less suited when you want a thorough, bottom-up view of costs.